Tokyo gold futures bounced back from a two-week low on Tuesday on buying spurred by a recovery in the spot gold price, but traders were cautious about the strength of the rebound.
The benchmark most-distant June gold contract on the Tokyo Commodity Exchange finished at 2,353 yen per gram, up 36 yen or about 1.6 percent, from Monday after moving between 2,342 yen and 2,359 yen.
Other months rose by 32-41 yen. Market participants said a lack of fresh incentives was preventing traders from striking out in any one direction. "People are still wondering about the strength of the recovery ... and few are actively chasing the metal," a Tokyo-based analyst said. He said the unresolved conflict in the Middle East continued to have the potential to lift gold, a traditional safe-haven investment.
US Secretary of State Condoleezza Rice is currently in the Middle East to try to broker a cease-fire between Israel and Hizbollah guerrillas as international concern grows over civilian casualties. Total gold turnover on TOCOM was estimated at a moderate 108,371 lots, down from Monday's 160,412 lots.
In the spot market, buying emerged after gold held above the psychologically key $600-an-ounce level despite a heavy sell-off the previous day. Spot gold was fetching $621.00/$622.00 an ounce at TOCOM's closing bell, up sharply from $612.10/$612.85 last quoted in New York.
Gold futures in New York fell sharply but managed to close above earlier three-week lows. Investors had been ditching positions amid a rallying dollar and talk of a possible cease-fire in Lebanon.
At the COMEX division of the New York Mercantile Exchange, August delivery gold dropped $7.00 to end at $613.20 an ounce. With few other leads to follow, traders were keeping a close eye on the currency market for pointers on the likely direction in the gold market. In the currency market the dollar slipped, erasing earlier gains after China's statistics bureau said the country should speed up diversifying its foreign exchange reserves because the US currency was at risk of declining.
The comments from the National Bureau of Statistics, which is not responsible for managing the country's $941 billion stockpile of foreign reserves, only had a modest impact on the market which is looking ahead to US economic data including consumer confidence and existing home sales. The dollar was fetching 116.62/116.67 yen at 0630 GMT, compared with 116.66/116.69 yen in late New York trade.
The Tokyo Commodity Exchange Index of nine commodity futures, which was launched on Monday, ended at 291.43, up 4.71 points or 1.64 percent from the previous day.
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